This paper aims to investigate whether banks exploit their information
advantage over bank-dependent borrowers, analyzing the impact of capital level
on banking credit risk-taking under syndication loans. By using a unique data
composed of 4828 syndicated loan of publicity banks facilities from the U.S.
for the period 1987-2010, we propose theoretical issues of the impact and effectiveness
of banks’ credit risk-taking from the perspectives of borrowers’ bank
dependent. The results show that there is positive correlation between the ratios
of bank’s capital over its total assets and banks’ credit risk-taking. It
implies that banks with lower capital level charge higher lending spread for
borrowers with fewer cash flows; hence the banks would bear a lower probability
of default.

Gadanecz, B., Tsatsaronis, K. and Altunba, Y. (2012) Spoilt and Lazy: The Impact of State Support on Bank Behavior in the International Loan Market. International Journal of Central Banking, 8, 121-173.